From professional football player to speaker and financial coach, Chris Hogan has been a staple among personal finance experts. The money guru once worked as vice president of a mortgage company and later turned to helping people successfully manage their money. As a finalist in the 2015 GOBankingRates “Best Money Expert” competition held in collaboration with Ally Bank, Chris Hogan offers this money tip for 2016:
The best thing you can do for your finances is to create a plan. Think about what your financial goals are and create a plan to reach those goals. The necessity of a plan sounds simple, but it is the one thing that many people overlook when it comes to their money. And a dream without a plan is simply a wish.
Follow these five steps to apply Hogan’s 2016 money tip to your life. From identifying key financial goals to paying down low balance debts, you can get your finances on track.
1. Identify your financial goals. Hogan said it best: Without a plan, your goals are a pipe dream. In 2016, consider what you would like to do for the next few years, and how you can manage your finances to make your dreams come true. Whether you’re saving for a house or car, as soon as you start mapping out what’s in store for the new year, you’ll see how much money you’ll need to save and what other steps you’ll need to take to reach those goals.
Hogan suggested you set deadlines, allowing you to see upcoming milestones. Just make sure the budget you have laid out allows you to succeed.
2. Set up a budget. Budgeting is one of the most essential parts of any money plan, yet about two-thirds of Americans don’t have one in place, according to a 2013 Gallup poll. One essential step to developing a budget is to write out your monthly income and expenses, like rent, mortgage, car insurance and groceries, and compare them. Knowing how much you’re spending in each category will help you identify where you’re overspending.
Cutting costs in certain categories, Hogan said in an ABC interview, is like getting a raise: “When you begin to give spending limits, it’s like you’ve given yourself a raise. You’ve now given yourself some money you can begin to save or attack debt [with].”
3. Tackle small debts first. As an associate of Dave Ramsey, Hogan is well versed in helping people reduce their debt. He suggested attacking low-level debt first: “The little $200 Home Depot store credit card? Knock that thing out, pay it off and get it out of your life, and then move to the next card.”
By paying off low-balance debts, you free up money you can put toward an emergency fund or other debts. By tackling debts with high interest, you also save yourself the money you would have otherwise put toward interest. Just be careful that as you free up more money every month you don’t start increasing spending.
4. Build up an emergency fund. One of the biggest elements of making a better money plan for 2016 is making room for an emergency fund. Hogan suggested opening a money market account, which can help your savings grow. “Once you get out of debt,” he said, “you need three to six months of money, however much it takes you to run your household, tucked away in a money market account for that rainy day.” If you’re struggling to make ends meet, set up a jar in the kitchen or bedroom and dump your change in it at the end of each day. Over time that money can help you curb the cost of an unexpected repair or other emergency.
5. Save for retirement even when you’re behind. Thirty-six percent of American workers have less than $1,000 in savings and investments, not including their primary residence or defined benefits like pensions, according to a survey conducted by the Employee Benefit Research Institute. Sixty percent have less than $25,000 saved for retirement. J.P. Morgan, however, advises you have at least $55,000 saved for retirement by age 40 if you make $50,000 a year. By 50, you should have $115,000 saved.
Don’t worry if you’ve fallen behind in retirement savings. Even if you can’t hit retirement savings checkpoints laid out by wealth advisers, the more money you save now will help reduce your reliance on Social Security when you’re older. “There’s still time on the clock,” Hogan said in a YouTube video. “We just have to get focused.” He advised you look to build additional income streams.
Whether you tutor on the side or sell a unique skill you have, generating additional income specifically for retirement is a great way to catch up when you’ve fallen behind. As part of your money plan for 2016, look to eliminate small debts holding down your budget, establish spending goals and a small emergency fund, and start contributing to your retirement.